As Nigeria introduces a National digital currency (cryptocurrency) in October, this article contains all you need to know about Nigeria’s e-Naira.
The A-Z on Cryptocurrency
Cryptocurrency is a digital currency in which transactions are verified and records maintained by a decentralised system using cryptography, rather than by a centralised authority. It is a form of digital asset based on a network that is distributed across a large number of computers. This decentralised structure allows them to exist outside the control of governments.
Cryptocurrency is a system that allows for secure payments online which are denominated in terms of virtual “tokens,” which are represented by ledger entries internal to the system. Examples of cryptocurrency include Bitcoin, Peercoin, Ethereum and Cardano.
Cryptocurrency makes it easier to transfer funds directly between two parties, without the need for a third party like a bank or credit card company. In modern cryptocurrency systems, a user’s “wallet” or account address has a public key, while the private key is known only to the owner and is used to sign transactions. Fund transfers are completed with minimal processing fees, allowing users to avoid the steep fees charged by banks and financial institutions for wire transfers.
Cryptocurrency In Nigeria And The Coming Of The e-Naira
Over the past couple of years, Nigerians have slowly, but gradually drifted towards a cashless economy. Recently, we have seen the emergence of different digital wallets that have been created to bridge the financial exclusion gap, while making financial transactions easier. Examples of these e-wallets include Paga, GetBarter, Chipper Cash and Wallets Africa, among others.
Statistics also show that Nigerians are rapidly embracing Cryptocurrency. Nigeria is one of the leading countries in the world when it comes to crypto adoption. A lot of Nigerians use bitcoin to hedge against inflation as the naira continues to lose its value, so crypto traders and investors continue to find ways to buy bitcoin in Nigeria.
In July 2021, the Central Bank of Nigeria (CBN) announced its intention to create the e-Naira using blockchain technology. The e-Naira, scheduled to launch in October 2021, is an example of a Central Bank Digital Currency (CBDC), a digital currency issued by the government. According to the CBN, the objective of launching the e-Naira is to aid financial inclusion, improve payment efficiency, improve revenue and tax collection, targeted social interventions, amongst other objectives.
CBDCs are currencies created digitally to facilitate digital transactions. While we can already perform digital transactions with the Naira, the e-Naira does not need to be backed by physical cash. The e-Naira will be created independently of bank accounts; the wallet will be created by financial institutions that will create customer identification through an application product interface.
The e-Naira will not grow or plummet in value like Bitcoin or other cryptocurrencies. Interestingly, the e-Naira will function the same way the Naira does, the difference being that the former is digital. The e-Naira will be pegged to the Naira so their value remains the same.
CBN will be rolling out “speed wallets” to meet the October 1 deadline while banks and other licensed financial institutions will be charged with creating wallets afterwards. These speed wallets will be in three tiers. The first can be used by people without bank accounts, however, they’ll be required to provide their National Identity Number (NIN), a passport photograph, name, date of birth, phone number and home address, and there will be a daily transfer limit of ₦50,000. Users of the second tier wallet are required to own bank accounts and have a Bank Verification Number (BVN), with a daily transaction limit of ₦200,000. The third tier wallet, which also requires a BVN, will operate with a transfer limit of ₦1,000,000.
Potential Advantages And Disadvantages Of The e-Naira
The e-Naira is expected to increase cross-border trade, accelerate financial inclusion, and encourage cheaper and faster remittances. It is also expected to be recognised as legal tender for the entire country.
However, the fact that it will not grow in value works as a disadvantage; if the value of the e-naira is going to be rigid, it defeats the essence of using blockchain technology. There will also be value-based transfer limits, which would restrict the volume of transactions that users can process. The Naira is currently experiencing a rapid reduction in value, so pegging the e-Naira to the Naira means that users will be dealing with a digital currency that is weak.
Paga is a leading mobile payments platform that allows users to transfer money electronically and make payments through their mobile devices. It acts as a mobile wallet, with which anyone who has an internet-enabled phone can conduct financial transactions.
When it comes to payments and money transfers, Paga is not at the mercy of the Naira. The platform offers an easy route for foreign transactions, and is the best way to receive money from abroad. You can receive money from the United States in your Paga digital wallet, and the coolest part is that you can easily convert it to Naira and spend.